Misleading statistics from Fraser

Earlier this week, the Fraser Institute, a conservative think tank, published a very misleading post. In it, they complain that the “size of government” has increased under Justin Trudeau, based on the fact that per-person federal government spending has increased in Canada over the past 80 years.

The very obvious objection to this kind of analysis, which Fraser does not address, is the fact that economic productivity increased dramatically over the surveyed period. Canada has become a much richer and prosperous country, and spending has increased in rough proportion to that increase in productivity. 

The size of government as assessed by government spending as a percentage of GDP has not increased dramatically in Canada, even if the government spends more in inflation-adjusted dollars. In fact, during the 1980s and early 1990s government spending as a percentage of GDP hovered from the high 40s to low 50s, much higher than it is currently. 

It is true that the Canadian federal government spends more than it did 80 years ago. But Canada is a much more productive country now, so it is an irrelevant point of comparison. In comparison to other high-income countries, Canada actually spends relatively little.

The authors go on to claim that high government spending causes poor GDP growth. This is not true. In general, government spending is basically unrelated to growth rate in high income countries. Many high income countries with similar or higher growth rates than Canada have much higher rates of spending.

For instance, Sweden has grown (in inflation-adjusted per capita terms) at a rate of 1.36% from 2010 to 2018, whereas Canada has grown at a rate of 1.00%. This is despite the fact that Sweden’s spending as a percentage of GDP averaged over the same period is 50.2%, whereas for Canada it is 41.4%.